An ECP lets exporting customers know in advance how export earnings will be converted into local currency on the day they have to transfer them (After Decree No. 13371/2016 dated 20/06/2016, any exporter governed by common law must transfer 70% of its export earnings no later than 30 days from the date of repatriation).
As soon as the goods are dispatched, the exporter negotiates with the bank the local currency/foreign currency rate applicable at the time when it sells its foreign currency. An ECP helps to hedge against currency risk.
An ECP is calculated as follows:
Borrowing the foreign currency on the International Money Market at a known rate for the period the seller wants.
Transferring the borrowed currency to the Interbank Currency Market.
Depositing the equivalent in auctioned treasury bills for the same period as the foreign currency loan.
The proposed rate will be calculated on the capital invested in auctioned treasury bills plus the interest received divided by the capital in borrowed currency plus the interest served, minus exchange commissions.